Tata Steel Q2 Results: Cons PAT nosedives 87% YoY to Rs 1,514 crore, misses estimates

Tata Steel Ltd’s consolidated net profit for the quarter ended September nosedived 87% year-on-year (YoY) to Rs 1,514 crore. The bottomline is way below ET Now poll of Rs 2,932 crore.

Consolidated revenue fell by around 1% to Rs 59,877.5 crore. However, the topline was higher than ET Now poll of Rs 54,298 crore.

The sharp fall in the net profit was on the back of higher costs and weak operational performance. Consolidated earnings before interest, taxes, depreciation and amortization (EBITDA) slumped 62% on year to Rs 6,060.4 crore.


Operating margin shrunk by a whopping 1713 basis points to 10.12%. Raw material costs in the quarter surged more than 57% YoY and 6.3% sequentially to Rs 27,977 crore.

Steel sales volume for the India business were higher by 21% sequentially and 7% YoY, primarily due to better demand in the domestic market.

However, sales volumes were lower on a QoQ basis in Europe due to seasonal factors and subdued demand in the continent. “Concerns about a slowdown in key economies, persisting geopolitical issues coupled with seasonal factors led to a volatile operating environment,” T V Narendran, chief executive officer and managing director, was quoted as saying in the release.

Despite these headwinds, the steel major saw the best-ever domestic sales, enabled by a strong product portfolio and an extensive distribution network. The utilisation of high-cost inventory of raw material and steel coincided with the drop in realisations, resulting in a decline in margin across geographies, Koushik Chatterjee, executive director and chief financial officer, said in the release.

Chatterjee expects the operating environment to gradually improve in the second half of the current financial year in India.

“The margins should benefit across geographies from a gradual recovery in Indian markets and favourable movement in raw material prices, especially coking coal. Energy costs in Europe continue to remain a key watchpoint,” he said.

OUTLOOK
Tata Steel expects China’s steel output to moderate on winter cuts even as demand finds support from stimulus measures by the government. Meanwhile, there were visible positive signs for demand in India during the festive season, and it is expected to further improve on recovery in key sectors.

However, the geopolitical situation and inflation clouded the outlook for demand, steel prices, and raw material prices in the European Union region, Tata Steel said.

Tata Steel expects steel prices in India to be rangebound, as strong demand recovery in automobile segment and buoyancy in rural and construction markets will be tempered by the international prices. Steel prices in Europe are likely to be affected by seasonality and recessionary concerns, while supply cuts should drive better market balance.